Question

Armer Company is accumulating data to use in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested the use of linear regression to derive an equation for maintenance hours and costs. Data regarding the maintenance hours and costs for the last year and the results of the regression analysis follow:

Month	Maintenance Cost			Machine Hours
Jan.	$	4,950			780
Feb.		3,750			620
Mar.		4,350			700
Apr.		3,570			600
May		5,100			800
June		3,710			610
July		3,780			620
Aug.		5,220			880
Sept.		5,010			790
Oct.		4,800			770
Nov.		4,050			650
Dec.		3,910			640
Sum	$	52,200			8,460
Average	$	4,350		$	705
Average cost per hour				$	6.00
a (intercept)				$	−238.58
b (coefficient)					6.5086
Standard error of the estimate					114.594
R-squared					0.96949
t-value for b					17.8260

At 400 hours of activity, Armer management can be approximately two-thirds confident that the maintenance costs will be in the range of __________

Multiple Choice

• $2,105.33 to $2,624.39.

• $2,250.27 to $2,479.45.

• $2,221.14 to $2,508.70.

• None of these answer choices are correct.

• $2,106.28 to $2,623.41.

Answer 1

SE = $114.594

Predicted cost at 400 hours = -$238.58 +400*6.5086

                                             =$2,364.86

Confidence range = $2,364.86 +(or)-$114.594

$2,250.27 to $ 2,479.45

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